1018202 Ontario Ltd. v. Hamilton Township Farmers' Mutual Fire Insurance Co., (2006) 209 O.A.C. 127 (CA)

• Judge: Doherty, Borins and LaForme, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: April 19, 2006
• Jurisdiction: Ontario
• Citations: (2006), 209 O.A.C. 127 (CA)

1018202 Ont. v. Farmers Mutual Fire (2006), 209 O.A.C. 127 (CA)

MLB headnote and full text

Temp. Cite: [2006] O.A.C. TBEd. AP.071

Adelia Pereira (plaintiff/respondent) v. Hamilton Township Farmers' Mutual Fire Insurance Company (defendant/appellant)

Hamilton Township Farmers' Mutual Fire Insurance Company (plaintiff by counterclaim/appellant) v. Adelia Pereira, Marco Pereira, Mario Pereira, Frank Mazza and 1018202 Ontario Limited (defendants by counterclaim/respondents)

(C40457)

Frank Mazza (plaintiff/respondent) v. Hamilton Township Farmers' Mutual Fire Insurance Company (defendant/appellant)

Hamilton Township Farmers' Mutual Fire Insurance Company (plaintiff by counterclaim/appellant) v. Adelia Pereira, Marco Pereira, Mario Pereira, Frank Mazza and 1018202 Ontario Limited (defendants by counterclaim/respondents)

(C40458)

1018202 Ontario Limited, Brian Fitzpatrick and Nina Fitzpatrick (plaintiffs/respondents) v. Hamilton Township Farmers' Mutual Fire Insurance Company (defendant/appellant)

Hamilton Township Farmers' Mutual Fire Insurance Company (plaintiff by counterclaim/appellant) v. Adelia Pereira, Marco Pereira, Mario Pereira, Frank Mazza and 1018202 Ontario Limited (defendants by counterclaim/respondents)

(C40459)

Frank Mazza (plaintiff/appellant) v. Hamilton Township Farmers' Mutual Fire Insurance Company (defendant/respondent)

Hamilton Township Farmers' Mutual Fire Insurance Company (plaintiff by counterclaim/respondent) v. Adelia Pereira, Marco Pereira, Mario Pereira, Frank Mazza and 1018202 Ontario Limited (defendants by counterclaim/appellants)

(C42372)

1018202 Ontario Limited, Brian Fitzpatrick and Nina Fitzpatrick (plaintiffs/appellants) v. Hamilton Township Farmers' Mutual Fire Insurance Company (defendant/respondent)

Hamilton Township Farmers' Mutual Fire Insurance Company (plaintiff by counterclaim/respondent) v. Adelia Pereira, Marco Pereira, Mario Pereira, Frank Mazza and 1018202 Ontario Limited (defendants by counterclaim/appellants)

(C42373)

Indexed As: 1018202 Ontario Ltd. v. Hamilton Township Farmers' Mutual Fire Insurance Co.

Ontario Court of Appeal

Doherty, Borins and LaForme, JJ.A.

April 19, 2006.

Summary:

In August 1993, a fire destroyed a commercial building. The building had been used as a mushroom growing facility prior to 1991 and was insured by the insurer under a standard commercial loss policy, which included coverage for loss resulting from fire. It also housed two residential apartments. The insurer denied coverage. The building's owner and the two residential tenants (the plaintiffs) sued the insurer. A trial by jury was held.

The Ontario Superior Court entered judgment in conformity with the jury's answers and awarded the following damages in favour of the plaintiffs: (a) damages of $274,617 for failing to indemnify the plaintiff, 1018202 Ontario Ltd., for the loss of its building and losses related to its business; (b) damages of $19,000 to the plaintiff, Mazza, for the loss of the contents of his apartment and for his expenses; (c) damages of $31,920 to the plaintiff, Pereira, for the loss of the contents of her apartment and for her expenses; (d) damages for loss of income to 1018202 in the amount of $150,000, which was the limit provided by the insurance policy, but which were assessed by the jury at $1,200,000; (e) punitive damages in the amount of $2,000,000 to Mazza, as assessed by the jury; and (f) punitive damages in the amount of $500,000 to Pereira, as assessed by the jury.

The Ontario Superior Court, in a decision reported at [2004] O.T.C. 695, awarded the plaintiffs costs of $802,368.87, which included $250,000 as a premium for risk assumed by the plaintiffs' counsel and the $31,281.25 contingency fee of National Fire Adjusters Inc., the public adjuster hired by the plaintiffs to prepare and advance their insurance claim. In addition to dealing with costs and interest, the court (a) dismissed 1018202's motion to amend the statement of claim in the first action to increase the claim for loss of profits from $150,000, which was the limit under the insurance policy, to claim damages for breach of contract in the amount of $1,200,000, which was the amount assessed by the jury for loss of income; and, (b) granted leave to Mazza and Pereira to amend their claims for punitive damages to claim $2,000,000 and $500,000, respectively, to conform with the jury's award of punitive damages in those amounts. The insurer appealed. 1018202 cross-appealed the court's refusal to grant leave to amend its statement of claim.

The Ontario Court of Appeal allowed the appeal, set aside the judgment and ordered a new trial. The court dismissed the cross-appeal.

Damages - Topic 1305.1

Exemplary or punitive damages - Insurance claim denial - Pereira owned a commercial building that was referred to as a mushroom farm - In 1991, mushroom production ceased because of financial difficulties - The farm was sold to Mazza and later to 1018202 Ontario Ltd. (run by Fitzpatrick, a close friend of Mazza) - In February 2003, Mazza informed his insurance broker that the farm was "back into business" and it would require insurance - The insurer issued an insurance policy - The farm did not produce any mushrooms from February to August 2003, when the building was destroyed by fire - The insurer denied coverage on the basis that the farm was shut down and coverage was excluded by the insurance policy - Pereira, Mazza and 1018202 sued - A jury allowed the action and awarded substantial damages, including $2,500,000 in punitive damages - The insurer appealed - The Ontario Court of Appeal allowed the appeal and ordered a new trial - The award was grossly excessive and irrational - See paragraphs 109 to 115.

Damages - Topic 5713

Contracts - Breach of contract - Loss of profits - Pereira owned a commercial building that was referred to as a mushroom farm - In 1991, mushroom production ceased because of financial difficulties - The farm was sold to Mazza and later to 1018202 Ontario Ltd. (run by Fitzpatrick, a close friend of Mazza) - In February 2003, Mazza informed his insurance broker that the farm was "back into business" and it would require insurance - The insurer issued an insurance policy - The farm did not produce any mushrooms from February to August 2003, when the building was destroyed by fire - The insurer denied coverage on the basis that the farm was shut down and coverage was excluded by the insurance policy - Pereira, Mazza and 1018202 sued - A jury allowed the action and awarded substantial damages, including $1,200,000 for loss of profits - The insurer appealed - The Ontario Court of Appeal allowed the appeal and ordered a new trial - There was simply no basis on which the jury could award the plaintiffs any amount for loss of income - Regardless of whether the farm had been destroyed by the fire, on the record before the court there was no likelihood that it would produce income, resulting in a profit, in the foreseeable future - In assessing the claim for loss of profits at $1,200,000, the jury perverted the evidence adduced at trial - See paragraphs 102 to 108.

Insurance - Topic 2490

Applicant's duty of disclosure - Default in duty to disclose - Misrepresentation - What constitutes - Pereira owned a commercial building that was referred to as a mushroom farm - In 1991, mushroom production ceased because of financial difficulties - The farm was sold to Mazza and later to 1018202 Ontario Ltd. (run by Fitzpatrick, a close friend of Mazza) - In February 2003, Mazza informed his insurance broker that the farm was "back into business" and it would require insurance - The insurer issued an insurance policy - The farm did not produce any mushrooms from February to August 2003, when the building was destroyed by fire - The insurer denied coverage on the basis that there was a misrepresentation in the insurance application that the farm was "back in business" (statutory condition 1) - Pereira, Mazza and 1018202 sued - A jury allowed the action and awarded substantial damages - The insurer appealed, arguing that the trial judge misdirected the jury in that the instructions left the jury with the impression that some element of dishonesty or intention to mislead was required before a misrepresentation could be established - The Ontario Court of Appeal allowed the appeal - The discussion of fraudulent omissions was unnecessary because it was not part of the insurer's case that the plaintiffs had made a fraudulent misrepresentation, either by omission or positive statement - It was also wrong in law, because statutory condition 1 was engaged by innocent misrepresentations - No element of fraud or deceit needed be shown - See paragraphs 57 to 59.

Insurance - Topic 2490

Applicant's duty of disclosure - Default in duty to disclose - Misrepresentation - What constitutes - Pereira owned a commercial building that was referred to as a mushroom farm - In 1991, mushroom production ceased because of financial difficulties - The farm was sold to Mazza and later to 1018202 Ontario Ltd. (run by Fitzpatrick, a close friend of Mazza) - In February 2003, Mazza informed his insurance broker that the farm was "back into business" and it would require insurance - The insurer issued an insurance policy - The farm did not produce any mushrooms from February to August 2003, when the building was destroyed by fire - The insurer denied coverage on the basis that there was a misrepresentation in the insurance application that the farm was "back in business" (statutory condition 1) - Pereira, Mazza and 1018202 sued - A jury allowed the action and awarded substantial damages - The insurer appealed, arguing that the trial judge misdirected the jury in allowing the plaintiffs' suggestion that there might be an obligation on the insurer to conduct a proper field investigation to go to the jury - The Ontario Court of Appeal allowed the appeal - This position was wrong in law - There were no circumstances that disclosed a need to make further inquiry - See paragraphs 60 to 63.

Insurance - Topic 2490

Applicant's duty of disclosure - Default in duty to disclose - Misrepresentation - What constitutes - Pereira owned a commercial building that was referred to as a mushroom farm - In 1991, mushroom production ceased because of financial difficulties - The farm was sold to Mazza and later to 1018202 Ontario Ltd. (run by Fitzpatrick, a close friend of Mazza) - In February 2003, Mazza informed his insurance broker that the farm was "back into business" and it would require insurance - The insurer issued an insurance policy - The farm did not produce any mushrooms from February to August 2003, when the building was destroyed by fire - The insurer denied coverage on the basis that there was a misrepresentation in the insurance application that the farm was "back in business" (statutory condition 1) - Pereira, Mazza and 1018202 sued - A jury allowed the action and awarded substantial damages - The insurer appealed, arguing that the trial judge misdirected the jury by putting to the jury the plaintiffs' suggestion that Mazza did not know that the status of the business was relevant and that the insurer had a duty to inform him about what information was or was not relevant and material during the application process - The Ontario Court of Appeal allowed the appeal - This position was wrong in law and should not have been left with the jury - See paragraphs 64 to 66.

Insurance - Topic 2490

Applicant's duty of disclosure - Default in duty to disclose - Misrepresentation - What constitutes - Pereira owned a commercial building that was referred to as a mushroom farm - In 1991, mushroom production ceased because of financial difficulties - The farm was sold to Mazza and later to 1018202 Ontario Ltd. (run by Fitzpatrick, a close friend of Mazza) - In February 2003, Mazza informed his insurance broker that the farm was "back into business" and it would require insurance - The insurer issued an insurance policy - The farm did not produce any mushrooms from February to August 2003, when the building was destroyed by fire - The insurer denied coverage on the basis that there was a misrepresentation in the insurance application that the farm was "back in business" (statutory condition 1) - Pereira, Mazza and 1018202 sued - A jury allowed the action and awarded substantial damages - The insurer appealed, arguing that the trial judge misdirected the jury by failing to provide a clear picture of what they had to determine in order to decide the misrepresentation issue - The issues were: whether the representation "back in business" was made; whether, if made, it was attributable to the plaintiffs; whether the statement was false in fact; and, whether the representation was material to the insurer's decision to provide coverage - The Ontario Court of Appeal allowed the appeal - See paragraphs 68 to 70.

Insurance - Topic 5603

Fire insurance - Exclusions - Business use - Pereira owned a commercial building that was referred to as a mushroom farm - In 1991, mushroom production ceased because of financial difficulties - The farm was sold to Mazza and later to 1018202 Ontario Ltd. (run by Fitzpatrick, a close friend of Mazza) - In February 2003, Mazza informed his insurance broker that the farm was "back into business" and it would require insurance - The insurer issued an insurance policy - The farm did not produce any mushrooms from February to August 2003, when the building was destroyed by fire - The insurer denied coverage on the basis that the farm was shut down and coverage was excluded by the insurance policy - Pereira, Mazza and 1018202 sued - A jury allowed the action and awarded substantial damages - The insurer appealed, arguing that the trial judge misdirected the jury by leaving the issues of the interpretation of the "shut down exclusion clause" and the contra proferentum rule to the jury - The Ontario Court of Appeal allowed the appeal - The trial judge erred in law in instructing the jury as she did - She should have interpreted the exclusion clause, instructed the jury on that interpretation, and told the jury that it was to decide on the evidence whether the farming operation was in fact shut down - See paragraphs 85 to 91.

Insurance - Topic 6052

Fire insurance - Defences - Fraud or false statements - Proof of loss - Pereira owned a commercial building that was referred to as a mushroom farm - In 1991, mushroom production ceased because of financial difficulties - The farm was sold to Mazza and later to 1018202 Ontario Ltd. (run by Fitzpatrick, a close friend of Mazza) - In February 2003, Mazza informed his insurance broker that the farm was "back into business" and it would require insurance - The insurer issued an insurance policy - The farm did not produce any mushrooms from February to August 2003, when the building was destroyed by fire - Pereira, Mazza and 1018202 hired Watson, a public adjuster, to help them fill out and file the proof of loss forms - Although the building and equipment were covered for only actual cash value (ACV), Watson filled out the higher replacement value cost on the forms and left the ACV column blank - The insurer denied coverage on the basis that the insured had committed fraud on its proof of loss by seeking replacement value - Pereira, Mazza and 1018202 sued - A jury allowed the action - The insurer appealed, arguing that the trial judge erred in putting to the jury the plaintiffs' position that the amount claimed simply represented a starting point in the negotiations, rather than the amount actually sought - The Ontario Court of Appeal rejected the argument - See paragraphs 92 to 101.

Practice - Topic 9224

Appeals - New trials - Grounds - General - Pereira owned a commercial building that was referred to as a mushroom farm - In 1991, mushroom production ceased because of financial difficulties - The farm was sold to Mazza and later to 1018202 Ontario Ltd. (run by Fitzpatrick, a close friend of Mazza) - In February 2003, Mazza informed his insurance broker that the farm was "back into business" and it would require insurance - The insurer issued an insurance policy - The farm did not produce any mushrooms from February to August 2003, when the building was destroyed by fire - The insurer denied coverage on the basis that there was a misrepresentation in the insurance application that the farm was "back in business" (statutory condition 1) - Pereira, Mazza and 1018202 sued - A jury allowed the action and awarded substantial damages - The insurer appealed arguing that the trial judge misdirected the jury - The Ontario Court of Appeal allowed the appeal and ordered a new trial - The trial judge's instructions failed to set out for the jury the points that it had to determine in order to resolve the misrepresentation issue - The failure to provide this framework to the jury, in conjunction with the failure to resolve the other legal issues for them, rendered the charge "materially deficient" and led to a substantial wrong or miscarriage of justice - See paragraphs 72 to 84.

Cases Noticed:

Walker v. Ritchie et al. (2005), 197 O.A.C. 81 (C.A.), leave to appeal granted (2005), 349 N.R. 195 (S.C.C.), refd to. [para. 7, footnote 3].

Pietkiewicz v. Sault Ste. Marie District Roman Catholic Separate School Board (2004), 71 O.R.(3d) 803 (C.A.), refd to. [para. 51].

Lyons v. Gore Mutual Insurance Co. (2000), 51 O.R.(3d) 528 (Sup. Ct.), refd to. [para. 58].

Ipapo Estate v. Citadel Life Insurance Co. (1989), 57 Man.R.(2d) 272 (C.A.), refd to. [para. 61].

Silva v. Sizoo et al. (1997), 48 O.T.C. 347 (Gen. Div.), refd to. [para. 62].

Ontario Metal Products Co. v. Mutual Life Insurance Co. of New York, [1925] 1 D.L.R. 583 (P.C.), refd to. [para. 65].

Martin v. Deutch, [1943] O.R. 683 (C.A.), revd. [1943] S.C.R. 366, refd to. [para. 69].

R. v. Finta (1992), 53 O.A.C. 1; 73 C.C.C.(3d) 65 (C.A.), affd. [1994] 1 S.C.R. 701; 165 N.R. 1; 70 O.A.C. 241, refd to. [para. 69].

Brochu v. Pond et al. (2002), 166 O.A.C. 353; 62 O.R.(3d) 722 (C.A.), refd to. [para. 75].

Mizzi v. Hopkins (2003), 171 O.A.C. 161; 64 O.R.(3d) 365 (C.A.), refd to. [para. 76].

Marshall v. Watson Wyatt & Co. (2002), 155 O.A.C. 103; 209 D.L.R.(4th) 411 (C.A.), refd to. [para. 77].

Algoma Steel Corp. v. Allendale Mutual Insurance Co. (1990), 38 O.A.C. 204; 72 O.R.(2d) 782 (C.A.), leave to appeal refused [1991] 1 S.C.R. v; 135 N.R. 158; 49 O.A.C. 318, refd to. [para. 88].

Stelco Inc. v. Royal Insurance Co. of Canada et al. (1997), 101 O.A.C. 89; 34 O.R.(3d) 263 (C.A.), refd to. [para. 88].

Gregory v. Jolley et al. (2001), 147 O.A.C. 336; 201 D.L.R.(4th) 729 (C.A.), leave to appeal refused (2002), 289 N.R. 194; 163 O.A.C. 398 (S.C.C.), refd to. [para. 98].

Credit Foncier et al. v. Halifax Insurance Co. et al. (1985), 67 N.S.R.(2d) 142; 155 A.P.R. 142 (C.A.), refd to. [para. 99].

McCannell v. McLean, [1937] S.C.R. 341, refd to. [para. 107].

Whiten v. Pilot Insurance Co. et al. (2002), 283 N.R. 1; 156 O.A.C. 201; 209 D.L.R.(4th) 257 (S.C.C.), refd to. [para. 109].

Continental Insurance Co. v. Almassa International Inc. et al., [2003] O.T.C. 226; 46 C.C.L.I.(3d) 206 (Sup. Ct.), refd to. [para. 110].

Khazzaka v. Commercial Union Assurance Co. of Canada (2002), 162 O.A.C. 293; 66 O.R.(3d) 390 (C.A.), refd to. [para. 110].

Authors and Works Noticed:

Brown, Craig, and Menezes, Julio, Insurance Law in Canada (2nd Ed. 1991), p. 93 [para. 65].

Counsel:

Earl A. Cherniak Q.C., and Kirk F. Stevens, for Hamilton Township Farmers' Mutual Fire Insurance Company;

Alfred M. Kwinter and Jason D. Singer, for Adelia Pereira, Frank Mazza, 1018202 Ontario Limited, Brian Fitzpatrick and Nina Fitzpatrick.

This appeal and cross-appeal were heard on October 19 and 20, 2005, by Doherty, Borins and LaForme, JJ.A., of the Ontario Court of Appeal. The following judgment of the Court of Appeal was delivered by Borins, J.A., on April 19, 2006.